Cost of living index theory under endogenous preferences

Abstract

This dissertation is concerned with making various cost-of-living indexes under the assumption that the 'real' or the 'representative' consumer has price-dependent utility functions. Because the indifference map of price-dependent utility functions can intersect I have taken the original bundle rather than the level of utility as the point of reference. Using the indifference curve from the 'current' and the 'base' preference structure which pass through the original bundle I constructed 'intra-preference' and 'inter-preference' cost-of-living indexes. The 'intra-preference' cost-of-living index is the ratio of two expenditures which are related to the same indifference curve. The 'inter-preference' cost-of-living index is the ratio of two expenditures which are related to different indifference curves.